Estate planning is important for anyone who wants to be certain of how their assets will be distributed and managed upon their passing — and trusts are one of its key elements. But what are the features of a revocable versus an irrevocable trust? And when should you opt for the latter? We’ll explore the matter in-depth right here.

Revocable Trust: An Overview

Also referred to as a “living trust”, a revocable trust is just what it sounds like — a trust that contains easily changeable terms. In contrast, an irrevocable trust can’t be modified after its creation without the consent of all beneficiaries.

But you might be wondering — what is a trust in the first place? Essentially, it’s a legal entity that an individual sets up to manage their various assets. And they set them up during their lifetime to make sure their assets will continue being used in a way that they deem appropriate — though, as you’ll see below, there are other reasons as well.

When the trust is formed and the assets are placed inside it, they are managed by a trustee — a third party. They’re the ones who make decisions on how the assets will be invested, and more importantly, how they’ll be distributed once the trust owner dies. Of course, the trustee must still follow the guidelines set by the trust owner back when the trust was formed — which is the entire point.

So, who uses trusts? Most commonly, wealthy individuals use trusts as a more preferable option to a will in the process of estate planning and stipulation of how their wealth is distributed and used upon their death. Apart from that, trusts can also be used to reduce tax burdens and stop assets from going to probate.

However, everything we’ve said so far stands for revocable trusts — but what are irrevocable trusts?

Irrevocable Trusts 101

Much like their revocable counterpart, an irrevocable trust can be used to avoid the costly and often time-consuming probate process — allowing you to set up arrangements in case of incapacity ahead of time, and keep your financials private in general.

However, irrevocable trusts have some additional perks, such as asset protection and estate reduction. These benefits are often compelling enough to outweigh their more tasking requirements — such as giving up control over your assets and becoming familiar with more complex strategies for managing your financials.

As we’ve said above — once the trust owner creates a trust, an irrevocable trust can’t be revoked or changed. There are exceptions to this, but there’s no workaround for the fact that all trust beneficiaries must agree to any changes before they’re made, barring something more serious like a court decree.

When a third party that will act as a trustee is designated, the trust owner — also called “grantor” in this case — transfers their assets into this new trust. When that happens, the grantor relinquishes their ownership rights, ceding control to the designated trustee. Also, the assets are no longer a part of the grantor’s taxable estate